Launched a Bidding War on Your House? Here’s How to Shake Out the Best Deal
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Marilyn Melia Contributing AuthorCloseMarilyn Melia Contributing Author
Marilyn Kennedy Melia is a longtime writer who has concentrated on personal finance subjects. Money matters are often mysterious to people, so she seeks to make complex financial subjects understandable to any reader.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
A successful weekend open house drummed up multiple offers on your home. One of the bids stands out over the others—a buyer willing to pay $10,000 over asking price.
Should you take it?
As bidding wars became the “new normal” in 2016-2017, home sellers all over the country were put in this type of position. Even in cooling markets, it’s true that any house can spark a bidding war with the right price and marketing behind it.
So if you find yourself lucky enough to juggle more than one offer, the truth is that going with the highest bid seems like the obvious choice. But it’s not quite that simple.
According to top-selling agents who’ve earned the shrewd negotiator badge over years of experience, handling a bidding war on your house is more than just a money game.
That’s because in real estate, there’s always strings attached, and everything is negotiable.
Put all of your offers into a spreadsheet for comparison
One of the first things you should do when handling multiple offers on your house is to draw up a spreadsheet that charts each offer and its various contingencies.
Within each purchase contract, a host of contingencies can obscure what the buyer is actually offering and whether the sale is a sure thing or could potentially fall through.
“You have to think, ‘Which offer will yield the highest net?’” warns Delinda Crampton, a top-selling agent who’s sold 79% more properties than her peers in Henderson, Nevada, and says 3 out of 4 of her listings were multiple offer situations this past spring.
For instance, a buyer may stipulate that for the purchase to go through, he has to sell his own home by a certain date or secure financing, among a host of other requests.
What’s more, certain stipulations like the seller paying for the buyers’ closing costs or a one-year warranty on all the appliances could subtract from a bid’s true value.
In other words, a purchase price that appears to be $4,000 over might turn out to be $500 under the next highest bid once you read the fine print—you just have to do some math and analysis to figure all that out.
That’s where a spreadsheet comes in handy. It’s an easy format to compare offers and see what you’ll end up with when you walk away from the closing table.
Consider a format with each of your offers labeled by the buyers’ last name in the left-hand rows, i.e.:
- Offer 1- Jones
- Offer 2 – Smith
- Offer 3- Barnes
- Offer 4 – Thompson
- Offer 5 – Crawford
Then the titles of the columns across the top should each be a different category, such as:
- Offer price
- Amount over asking price
- Escalation clause (an agreement to beat the top offer by a certain amount)
- Home inspection contingency (Yes or Waived)
- Financing contingency (Yes or Waived)
- Sale contingent on buyer selling home (Yes or No)
- All-cash (Yes or No)
- Closing costs (such as home warranty, title search, other fees)
- Closing date
- Net to seller
This clear layout of all the details will help you see that the offer that’s $10,000 over asking is a riskier deal than the all-cash offer for full price. Your agent will help you draft up the spreadsheet and guide you through filling it out, then walk you through all your options.
Before you pick an offer, your agent should do some detective work
Before finalizing the offers on the spreadsheet, a good listing agent will also do some detective work to find out what’s happening behind the scenes.
Say, for example, that two offers clearly stand above the rest. But one of them is contingent on the buyer selling their current home before the sale of your home can go through.
Ali Van Westenberg, a top-selling agent in Denver, Colorado, which was a hot seller’s market this year, would find out how likely it is that the buyer will sell their home within a reasonable time frame to the best of her ability.
“I’ll talk to the [agent for the buyer] and find out whether his house is already under contract, how long it has been on the market, and how much interest buyers have had [in the house],” Van Westenberg explains.
Moreover, if there’s a financing contingency, any serious buyer will allow the seller’s agent to talk with the mortgage lender to gauge the probability of the loan going through.
Lenders won’t convey personal information to the seller’s agent, such as how much the buyer earns. But a lender will share whether they’ve been able to verify the buyer’s income, employment history, credit, savings, and other factors to confirm loan approval.
A solid financial standing is especially important when a buyer offers to pay more than the home is listed for.
Say a buyer offers $8,000 more for a home with a $300,000 list price—and that $300,000 is in-line with all the recent comparable sale prices.
It’s likely then that the appraised value of the home will come in right at $300,000, no more.
The only way for the loan and purchase to go through is if the buyer comes up with $8,000 cash to make up for the shortfall. (In some cases, a seller might agree to drop the price, but that’s not always a compromise you want to make).
When there’s an offer over list price, an agent should find out whether the buyer has enough cash in reserve to fund any difference between the cash and the estimated appraised value, Van Westenberg explains.
That’s why a cash offer—though it might be for a lower amount than another bid—often emerges as the winning choice, notes Crampton. Not only is the cash offer devoid of contingencies, but bypassing all of the financing headaches paves the way for a quick closing.
Leverage multiple offers to craft the best deal, and always have a backup buyer
When an agent lays out the purchase offers, contingencies and all, as the seller you have the chance to make a counter-offer on any of the bids with the goal of turning a good offer into a great one.
For example, a seller may go back to the two offers he and his agent agree are the best, and ask for further accommodation on each—like adjusting the closing date.
As long as a seller gives permission, Van Westenberg says, a listing agent can spill the details of the top offer to other competing buyer’s agents. This can be a sound strategy to encourage motivated buyers. It might encourage at least one of them to match the offer of the competition and shake out the best deal in your favor.
Another tactic is to ask all bidders for their “best and final offer” by a certain time to drive urgency.
In any case, says Crampton, it’s important to ask buyers who are close runners-up, “Can we keep you as a backup offer?”
In a field crowded with competition, your number two buyer may be more than happy to wait in the wings.
Picking an offer is personal, but keep your emotions in check
According to an analysis of 14,000 competing bids placed in 2016 and 2017, buyers most often win bidding wars by placing all cash offers or waiving the financing contingency (that means if their loan doesn’t go through, the seller keeps the earnest money).
Interestingly, over 40% of competing offers included a personal letter to the seller to persuade them to accept their bid, which was more effective than you might think: a letter boosted a buyer’s chance of winning the bidding war by 52.2%.
Ultimately, as a seller you have the power to pick the offer that’s right for you. Perhaps a buyer who promises to take good care of the house long after you’ve sold it or a touching note about how much someone loves your home would make your heart feel happy.
But you may want to think about how your emotional attachment to a house could cloud your judgment or hinder your best financial interests. That’s why you should weigh what your heart tells you against the hard numbers.
“Doing math actually primes you to be more rational and less emotional,” says Bill Becker, associate professor of business at Virginia Tech and a negotiation theory expert.
In other cases, you might be tempted to reject an offer out of spite because you heard a buyer wants to gut your newly renovated kitchen, or they asked you to fix something that you think is in perfectly good condition.
Another risk is that you ask too much of your buyers, get greedy with your demands, and end up empty-handed.
“Greed is both good and bad,” says Becker. “You should try to get the most out of your sale as possible, but if you appear or sound greedy, the other party may look for ways to back out of the deal.”